Fresnillo shines as miners lead the FTSE higher

Mining shares have helped the FTSE 100 close in positive territory for the first time this week.

Investors took heart from a positive quarterly report from US aluminium giant Alcoa, as the American reporting season got underway. Out of the top ten risers in the leading index, six were miners with Fresnillo topping the pile. The silver specialist's shares rose 44.5p to 487p after Citigroup upgraded the company from hold to buy. Citi said:

"We believe Fresnillo has all the ingredients for longer term outperformance and is well positioned for growth. All three [of its] mines are low-cost, long-life operations with reserve lives in excess of 10 years. The outlook for silver is improving. Approximately 55% of silver demand is from industrial applications and lead indicators appear to be bottoming and turning up in some regions."

Anglo American added 87.5p to £16.51 on suggestions that its shareholders were unhappy with the nil-premium merger proposal from rival Xstrata, up 22.7p to 609.8p. Traders suggested this could perhaps prompt Xstrata to return with a higher offer, although there was also talk it could turn its attentions instead to Lonmin, up 9p to £10.31, where Xstrata already has a 24.7% stake. But Evolution Securities pointed out:

"Xstrata only walked away from Lonmin on 1 October 2008 and so it will not be able to return to the offer table until 1 October 2009 unless it is willing to pay a price of about 1979p (equivalent to the average price that it paid for a 14.2% stake in Lonmin that day), or makes an agreed offer which we think is unlikely."

With the Bank of England leaving interest rates on hold as expected - although at the same time defying forecast of an expansion of its quantitative easing programme - the FTSE 100 closed 18.43 points higher at 4158.66.

Next climbed 38p to £15.69 after a positive meeting between the company and Goldman Sachs, while an upbeat note on the retail sector from Citigroup helped lift Marks & Spencer by 7.5p to 313.75p and Home Retail by 6.5p to 266.5p. Citi raised its rating on both companies from hold to buy adding:

"We now have 13 buy and two hold ratings across our UK coverage universe."

Insurers turned in a mixed performance. Legal and General was lifted 1.51p to 51.29p as Morgan Stanley upgraded from equal weight to overweight, saying solvency worries were overdone. The bank said:

"We believe the market is implying a negative value of (£78)m for the UK life business, relative to our estimated market consistent embedded value of £2.6 billion for this unit. Although L&G's savings unit faces challenges, the protection and annuities business units are industry leaders. As consolidator Resolution starts buying assets, it should highlight to investors the value in L&G's life business."

But rival Aviva was among the main losers for the second day running, falling 12p to 291p. A day after analysts at KBW predicted the insurer might cut its interim dividend, S&P Equity Research today cut its recommendation from hold to sell and said Aviva may need to make disposals to support its capital position. S&P said:

"In our view Aviva will need to make further disposals to support its capital position. Solvency is vulnerable to declining real estate values, defaults on loans secured on commercial property, bond defaults in the US and tighter implementation of solvency rules by the UK's FSA."

Oil exploration and production group Cairn Energy fell 39p to £20.98 on fears of a new tax on its Indian subsidiary, although Phil Corbett at house broker Royal Bank of Scotland played down the concerns. He said:

"The Rajasthan state government has proposed a new surface rent tax on oil and gas producers. At this stage we believe that there is unlikely to be any impact on Cairn if this tax is brought into force."

Cairn was not helped by news that UBS had cut its price target on the company from £23.60 to £21.45.

National Grid, whose shares have fallen back recently on concerns about its balance sheet, could shortly see its debt upgraded by ratings agency Moody, according to Nomura which has issued a buy note on the business with a 715p price target. National Grid closed 3p higher at 538.5p.

Housebuilder Redrow lost 11.5p to 201p after issuing disappointing results, while Barratt Developments reversed an early rise to close 3.5p lower at 151p, despite a more upbeat statement. But both builders warned trading would not pick up substantially until there was more mortgage availability. Analysts at Collins Stewart said:

"Overall Barrratt reported trading in line with expectations, Redrow was disappointing. Both groups are seeing more stability in the housing market with lower cancellation rates. Barratt does not expect material further landbank writedowns. This is a key positive from the trading update. Redrow however notes that it is reviewing the carrying value of its land/work in progress, which suggests further writedowns to us. This is despite Redrow having already made by far the biggest writedowns in the sector to date."

Animal genetics company Genus jumped 34p to 501p as it said its underlying profits for the year would be flat, but would be boosted by currency fluctuations. Panmure Gordon issued a hold recommendation, saying:

"Genus's customers are suffering from short-term cyclical weakness, but the long-term structural strengths of the company remain intact."